In relatively thin FX trading conditions, due to the USA markets being shut for Martin Luther King day, the UK’s pound may have avoided more suffering during Monday. Sterling was hammered versus its peers immediately upon markets opening on Sunday evening, but the currency did stage a modest comeback later on in the trading day, as a consequence of soothing words emanating from various sources within (or close to) the UK government.
However, having consistently rattled markets over recent weeks with her clumsy words, prime minister May now has to navigate her way between the tight corners of the small room she’s boxed herself into. And that elephant in the room, the actually exit date timetable for the final removal from Europe by the UK, can’t be pushed back anymore, or brushed under the carpet, by the use of temporary, clever, political manoeuvres and words.
As she reminds us constantly “Brexit means Brexit” and on Tuesday her speech will outline the strategy for the UK’s exit. If as suspected; she announces that she’s prepared to curtail European immigration, in order to sacrifice barrier free trade opportunities, then the markets will deduce that the UK is effectively “closed for business” and a fresh sell off of sterling could ensue.
May’s speech isn’t the only Brexit hurdle on the horizon, as sterling also faces turbulence if (as seems likely), the U.K. Supreme Court rules to support Parliament, overruling the UK government’s insistence that they alone can bypass parliament and set their own agenda were a European exit is concerned.
GBP/USD fell by as much as 1.6% on Monday to $1.1986, the weakest level witnessed since Oct. 7th which was $1.1841, the lowest seen since 1985. Leveraged funds have boosted their net short positions on sterling to 61,273 contracts as of Jan. 10th, double the previous week ending Dec. 20th, according to the data from the CFTC (U.S. Commodity Futures Trading Commission).
Sterling fell by as much as 2.5% versus the yen, GBP/JPY, slumping to 136.48 at one stage, only to recover to circa 137.50, before the end of the trading day.
EUR/USD rose by as much as 1.5% versus sterling, to reach a a two month high of 88.53 pence, finally retreating to 87.85 pence, this was still up 0.7 percent on the day.
European equity markets experienced sell offs during Monday; France’s CAC closed down by 0.82%, Germany’s DAX down by 0.64%, Italy’s MIB down by 1.37% and the UK’s FTSE 100 Index finally halted its record series of daily gains and ten consecutive all-time highs, by closing down 0.15% at 7,237.
Silver clipped its recent gains to be down 0.09% at $16.81 as Monday’s trading drew to a close, Gold climbed 0.4%, extending last week’s surge to trade at $1,202.78 an ounce. Oil rose by 0.5%, to $52.64 a barrel.
USD/JPY fell, hitting a six-week low of 113.61, before recovering to circa 114.15. The dollar index was up 0.4 percent, after enduring its worst performance last week since Trump’s election in November. EUR/USD dropped 0.4 percent to $1.0604.
Economic calendar events for January 17th 2017 all times quoted London time.
09:30, currency effected GBP. Core Consumer Price Index (YoY) (DEC). The expectation is for the UK’s inflation figure to have remained constant at 1.4%. Should the figure come in higher then sterling may be effected, the likelihood is, based on the Bank of England governor Mark Carney’s speech on Monday, that inflation will rise steeply in 2017. And with wages failing to match inflation, consumer spending, the engine of growth for the UK’s economy, could be hit severely.
10:00, currency effected EUR. German ZEW Survey (Current Situation) (JAN). The expectation is for the reading to rise to circa 65, from the previous measurement of 63.5. As Germany is the leading driver of growth for Europe, this sentiment survey is often looked at for signs that Europe (and indeed Germany) is maintaining its pattern of robust growth.